India's retail inflation likely fell below 2.8% last month
What's the story
India's retail inflation, as measured by the Consumer Price Index (CPI), is expected to have fallen below 2.8% in June. If this prediction holds true, it would mark the second consecutive month of sub-3% inflation and the fifth straight month below the RBI's medium-term target of 4%. The official data will be released by the Indian government tomorrow.
Factors
Anticipated decline in retail inflation
The anticipated decline in retail inflation is largely attributed to a decline in food prices, owing to a strong spring harvest. Despite some vegetables witnessing price hikes due to an uneven monsoon, cereal prices have fallen, easing overall food inflation. The year-on-year inflation rate based on the All India Consumer Food Price Index (CFPI) in May was 0.99%, a sharp drop of 79 basis points from April's figures.
Streak
Longest disinflationary streak in nearly a decade
The predicted decline in CPI marks its longest disinflationary streak in India in nearly a decade. This is mostly due to a high base effect, as vegetable costs had surged almost 30% during the same period last year. According to CRISIL's monthly indicator of food plate cost, tomato costs fell 24% year-on-year to ₹32/kg in June from ₹42/kg last year due to this high base effect.
Inflation forecast
Core inflation expected to have risen slightly
Core inflation (headline inflation minus food and fuel) is expected to have risen slightly in June to 4.5% from May's 4.2%. This increase is mainly due to a rise in gold prices and some other items, indicating steady demand. Earlier this month, Bank of Baroda had predicted CPI for April-June would undershoot RBI's 2.9% forecast based on comforting high-frequency price data as of June 25.